Eugene Grygo, Chief Content Officer, FTF News
A little over a week ago, news broke that Payments Canada, the Bank of Canada, TMX Group, Accenture and R3 have been able to show that distributed ledger technology (DLT), the ballyhooed blockchain framework at the core of Bitcoin and other crypto-currencies, has passed an initial test of its ability to facilitate equity clearing and settlement.
This intriguing bit of news revealed via a white paper, “Jasper Phase III: Securities Settlement Using Distributed Ledger Technology,” got lost amid the clamor over the big sell-off and the fluctuating value of crypto-assets, which have taken attention away from DLT. But the report is a big reason to stay interested in DLT.
The proof that DLT can deliver in the Ops realm comes as “a result of the third phase of Project Jasper,” a collaborative research initiative among the aforementioned players “to experiment with an integrated securities and payment settlement platform based on DLT. … Whereas previous phases of Project Jasper focused on the clearing and settlement of high-valDLTue interbank cash payments using DLT, phase III explored an integrated payments and securities infrastructure,” according to a release from the four parties.
The parties to the project engaged in “a hands-on exploration of settlement and payment interactions in a private distributed ledger network by building and testing a proof-of-concept (POC) system designed to be integrated with existing market infrastructure,” according to officials.
“Securities and cash were brought on ledger through the issuance of digital depository receipts (DDRs) by the Canadian Depository for Securities and the Bank of Canada respectively, allowing POC participants to settle simulated securities against simulated central bank cash on the distributed ledger,” according to the participants. “Equity and cash DDR could be redeemed after their transfer since settlements were final and irrevocable.”
The POC efforts facilitated clearing and delivery versus payment settlement “and when more broadly implemented, would reduce counterparty risk and free up collateral,” officials say. The POCs demonstrate “that it is possible to complete post-trade settlement of netted and novated transactions on a DLT platform, while preserving privacy for market participants and their transactions.”
Among the findings in the 36-page report are:
- The POC DLT platform was able to “process pledge, transaction and redeem functions in a manner designed to address the privacy and scalability requirements of the Canadian system;”
- The test platform handled “different participant sets so that each participant was only capable of performing those functions for which they were authorized;”
- The underlying “loose integration framework” enables the authorities involved — the Bank of Canada for cash and Canadian Depository for Securities for equities — to remain “in full control of their respective instruments or tokens.”
For the next steps, the Jasper Phase III group “will require further study to determine the impact of DLT with respect to cost savings or efficiency gains,” officials say. The next set of tests will be wider in scope for “multiple assets, more of the trade and post-trade settlement lifecycle, and additional types of trades.”
Echoing others, Andrew McCormack, the chief information officer (CIO) for Payments Canada, says that he is “pleased with the Phase III outcomes.” The promising results mean that the group will need to “actively explore what opportunities and challenges DLT could offer in the integration of financial markets and for the Canadian economy,” he adds.
The full white paper can be found here.
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